The collapse in the Thomas Cook share price in the last few months was increasingly emblematic of the problems facing the sector over the past few years.
In May, the Thomas Cook share price was already down 80% after two profit warnings, amid concerns that the business might have to raise more money from shareholders. This turned out to be remarkably prescient, given events since July, and today’s collapse into administration.
Don’t just book it, Thomas Cook it, was a slogan that was familiar to a lot of people who grew up in the 1980s, and was a symbol of the package holiday boom that really took off between 1985 and the 1990s. The company attempted to revive the slogan at the end of 2008, but since then they have struggled to adapt to a changing travel and retail environment. Today’s collapse appears to be the inevitable outcome of decisions that were made back in 2007, as well as an inability to adapt fast enough to changing retail tastes in the last few years.
The changing industry's impact on Thomas Cook share price
The growing popularity of the pick-and-mix type of travel that allows consumers to book their holiday packages separately, as well as new kids on the block like AirBnB, has seen the travel industry change beyond all recognition in the past decade, as consumers book travel, accommodation, and car hire independently.
It’s not just been Thomas Cook that has fallen victim to overcapacity in the sector, with the collapse of a host of airlines in the past few years, with the most high-profile casualty being Monarch a couple of years ago.
Inevitable collapse, despite bailout
Today’s decision to cease trading almost became inevitable after the initial bailout package of £750m that was agreed in July, suddenly grew to £950m, raising the possibility that the competitive nature of the sector might mean that the company may well need even more money further down the line. Unsurprisingly, The Thomas Cook share price bore the brunt of the speculation.
With the level of debt already at £1.6bn, the request by bankers for another £200m on top of the £950m was the final straw for a company that has been in the last chance saloon for several months now.
This has been reflected in the performance of the Thomas Cook share price in the last year. It has fallen sharply in recent months, with today’s collapse likely to send ripple effects out across the wider industry, as investors focus on where the next weak links may lie.
We’ve seen over the last few months how other budget airlines, as well as other travel operators in the sector, have struggled to complete their forward bookings. Companies like TUI Travel, Easyjet and Ryanair could benefit in early trading due to the sheer size of Thomas Cook's business, which they could get a good chunk of.